New Zealand – farming without subsidy

With the inevitable changes that Brexit will impose on the UK farming industry, it’s worth looking at New Zealand’s approach, where almost all farming subsidies were removed in 1984, after years of protection by a government that had set production quotas, paid generous subsidies and dictated land use.

With the inevitable changes that Brexit will impose on the UK farming industry, it’s worth looking at New Zealand’s approach, where almost all farming subsidies were removed in 1984, after years of protection by a government that had set production quotas, paid generous subsidies and dictated land use.

New Zealand’s catalysts for change began in 1968 with the loss of cheap phosphate on Nauru’s independence and the UK’s membership of the EU in 1972, which removed its main market. After that, a fiscal and financial crisis in 1984 had New Zealand’s farmers agree to the removal of subsidies, provided the government removed all other trade restrictions. Unfortunately, the left-leaning government removed the 30 different assistance schemes immediately, but took six years to remove trade barriers, making it a (very) difficult period for farmers. However, after this New Zealand’s farmers have thrived by focusing on market signals, despite being 12,000 miles from their main consumers and operating in the third freest economy in the world (behind Hong Kong and Singapore).

A few statistics highlight what was achieved:

Total assistance as a percentage of output fell from 30% to 3%.

At the start, farm profitability halved, but government forecasts of 20% of farms going out of business were too pessimistic, as only 5% went out of business, including 1% actual forced sales.

The total number of farms has not really changed (~80,000), although there has been a slight decrease in the percentage of land used for farming.

Agricultural productivity increased 5.9% per year in the years following 1984, compared to 1% previously.

The total number of sheep dropped from 69.7m in 1984 to 39.6m in 2002, but the number of lambs produced each year was unchanged.

The number of export markets increased from 10 in 1980 to 102 in 2002.

Agriculture is now optimised to the land available and has (originally unintended) increased its environmental benefit.

In the 20 years from 1984 to 2004, exports grew in US$ terms by 590% for horticulture, 960% for kiwi fruit and 1250% for wine.

Agriculture is a complex and challenging area for any trade deal, even within WTO rules, but New Zealand’s example shows what farmers can achieved when not shackled by red-tape or being forced to compete in a market distorted by subsidies. With thanks to the Rodale Institute, Cato Institute and Vangelis Vitalis for the data.